Amazon posts $3.4b quarterly profit, beating estimates; shares rise

By Jeffrey Dastin & Arjun Panchadar

27 July 2018 — 7:06am

Amazon.com on Thursday reported a record profit and forecast plowing past analyst estimates, strutting how its lucrative cloud computing and advertising businesses were helping it overcome the high costs of retail.

The e-commerce behemoth's shares rose more than 2 per cent in after-hours trade. The report may come as a relief to investors in US technology stocks, still reeling from a profit warning by Facebook Inc Wednesday that sent its stock down 19 per cent.

Amazon's report shows how the world's largest online retailer has learned to compensate for the high costs of fast package delivery and video streaming, which it has marketed around the globe to huge success. It was the first mover in the business of selling data storage and computing power in the cloud, a bet that continues to pay dividends and give it the leeway to invest in grand projects.

For instance, the company is working to ship food from Whole Foods Market stores across the United States, in an ambitious attempt to bring groceries into the age of online retail.

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Amazon's spending typically climbs in the July through September quarter, pressuring profits as the company prepares for Christmas and the winter holidays, its peak sales period for the year.

Yet the company said it expects an operating profit between $US1.4 billion ($1.9 billion) and US$2.4 billion, up from $US347 million a year earlier. Analysts were expecting $US843 million, according to Thomson Reuters I/B/E/S.

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The company reported a second-quarter profit of $US2.5 billion ($3.4 billion), its largest ever.

A July event that the company created to drum up business during the summer shopping lulls, Prime Day, has become a bonafide event to rival Black Friday. Popular brands now agree to put their inventory on sale for members of Amazon's loyalty club Prime, while rival retailers scramble to drive traffic back to their websites.

This year, Amazon said the July event saw Prime members purchase more than 100 million products. The company said it now expects third-quarter sales of between $US54 billion and $US57.5 billion, up from $US43.7 billion a year earlier.

Even more crucially, more people joined Prime on July 16 than on any previous day in the company's history, Amazon said.

Prime revenue

Prime includes fast shipping and video streaming for $US119 per year in the United States and is the cornerstone of Amazon’s strategy. Its more than 100 million members globally spend above average amounts on Amazon, to get the most out of their subscriptions.

In the just-ended second quarter, Amazon's total net sales rose 39 per cent to $US52.89 billion, missing the average analyst estimate of $US53.40 billion.

Hiking the annual US price of Prime 20 per cent during the second quarter showed few signs of discouraging sign-ups: the company said subscription revenue increased 57 per cent to $US3.4 billion.

Highly profitable ad sales were a bright spot last quarter, too, and they are expected to help Amazon overcome the slowdown in the northern hemisphere summer. The company said the category, including some other items, grew 132 per cent to $US2.2 billion. That also was ahead of analysts' average estimate of $US2.1 billion.

And finally, Amazon Web Services (AWS), the company's profit center, posted a 49 per cent rise in sales to $US6.1 billion, beating the average estimate of $US6 billion, according to Thomson Reuters I/B/E/S.

Reuters

Amazon just reported a second-quarter profit of $US2.5 billion, its largest ever.Credit:AP